Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?

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BlackTom AI · Accepted Answer

The question asks about how an anticipated future price rise for petrol affects current demand. 
Option a: Decrease. If people expect prices to go up, they typically buy more now to avoid paying higher prices later, so current demand would not decrease. This makes this option unlikely.
Option b: Increase. With the expectation that prices will rise next week, consumers are incentivized to purchase petrol today to lock in the lower current price. This anticipatory buying behavior increases current demand, so this option fits the scenario.
Option c: Contraction. A contraction refers to a reduction in quantity demanded in response to a price rise occurring now. Since the price is expected to rise in the future rather than immediately, the immediate price has not risen to cause a contraction, making this choice inaccurate in this context.
Option d: Expansion. An expansion means an increase in quantity demanded due to a fall in price or other favorable conditions. Here, the factor is an expected future price increase, not a current price decrease, so describing current demand as expanding is misaligned with the forward-looking price signal.
In summary, the key idea is that anticipated higher prices in the near future shift current demand upward as buyers stock up now to avoid higher costs later, so option b best captures the effect.

Imagine that the news reports that, due to global factors, the price of petrol (fuel) is likely to increase substantially next week. What impact is this likely to have on demand for petrol now?

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